The CFPB recently issued revised versions of the small entity compliance guides for the Loan Originator Rule and the Home Ownership and Equity Protection Act (HOEPA) Rule.

While some of the most well-known provisions of the Loan Originator Rule are the provisions addressing loan originator compensation, the rule also defines the concept of a loan originator and addresses qualification and other requirements related to loan originators. Among various changes, the guide for the Loan Originator Rule is revised to reflect (1) the broadening of an exemption from the concept of a loan originator with regard to retailers of manufactured and modular homes and their employees made by the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act), which was adopted earlier this year (2) the process for contacting the CFPB with informal inquiries about the rule, and (3) that the TILA/RESPA Integrated Disclosure (TRID) rule is now in effect (the prior version of the guide was issued in March 2015 and the TRID rule became effective in October 2015).

Among various changes, the guide for the HOEPA Rule is revised to reflect (1) the broadening of the exemption from the concept of a loan originator made by the Act (which is noted above), as this can affect the requirement to include loan originator compensation in points and fees for purposes of the points and fees threshold under the HOEPA rule, and (2) the process for contacting the CFPB with informal inquiries about the rule.

Note that for purposes of the points and fees cap to determine qualified mortgage loan status under the ability to repay rule, the definition of “points and fees” set forth in the HOEPA rule is used. As a result, corresponding changes likely will be made to the provisions of the small entity compliance guide for the ability to repay rule to reflect that the Act’s broadening of the exemption from the concept of a loan originator with regard to retailers of manufactured and modular homes and their employees may affect the calculation of points and fees for qualified mortgage purposes. The current version of such guide was issued in March 2016, and the version of the guide on the CFPB’s website includes a notice that the guide has not been updated to reflect the Act.

 

A number of housing and financial industry trade groups, including the Mortgage Bankers Association and Real Estate Services Providers Council, Inc. (RESPRO®), recently sent a letter to Senators Mitch McConnell (R-KY) and Charles E. Schumer (D-NY) supporting the confirmation of Kathleen Kraninger as CFPB Director.

The trade groups state that Ms. Kraninger “has the ability to lead and manage a large government agency, like the Bureau, which is tasked to ensure consumers’ financial interests are protected,” and “also fulfill the equally important role of ensuring businesses have the necessary compliance support to further those interests.”

Addressing concerns regarding the CFPB, the trade groups state “Our members believe the Bureau must improve its examination, enforcement, rulemaking and guidance processes to assist with regulatory compliance and bring certainty in the marketplace. As evidenced during the Senate Banking Committee confirmation hearing, Ms. Kraninger’s testimony conveyed a commitment to such actions along with a thoughtful review of the law for corresponding administrative actions.”

As we reported previously, the Senate Banking Committee voted to approve Ms. Kraninger’s nomination as CFPB Director, but the full Senate has not acted on the nomination. If the Senate does not act on Ms. Kraninger’s nomination during the lame-duck session, the nomination will be returned to President Trump. Once the new Congress convenes next year, the President could re-nominate Ms. Kraninger or nominate another individual for CFPB Director. As we reported previously, under the Federal Vacancies Reform Act Mick Mulvaney can continue to serve as Acting CFPB Director for a 210-day period if Ms. Kraninger’s nomination is returned or rejected, and once another nomination is made he could serve as Acting Director during the Senate’s consideration of the second nomination.

The CFPB and Federal Housing Finance Agency (FHFA) have released the first public use file containing data from the National Survey of Mortgage Originations. The NSMO is a component of the National Mortgage Database (NMDB®) program, which we reported on previously.

Since 2014, the CFPB and FHFA have sent approximately 6,000 surveys each quarter to consumers who recently obtained mortgage loans to obtain feedback on their experiences during the origination process, their perception of the mortgage market and their future expectations. The recently issued public use file reflects data from the first 15 quarterly waves of surveys, and covers nearly 25,000 loans originated from 2013 to 2016.

Letters are sent to consumers randomly selected for the survey in both English and Spanish, and consumers who elect to complete a survey may do so in English or Spanish. The current version of the survey contains 94 questions. Topics addressed by the questions include the shopping process, factors regarding the consumer’s selection of the mortgage lender and mortgage loan, the application process, satisfaction with the lender and origination process, whether the consumer experienced certain issues at the loan closing (such as whether the loan documents were not ready or whether the consumer felt rushed or was not given time to read documents), information regarding the consumer (including demographic and income data), whether the consumer expects changes in household income or expenses, whether the consumer expects any changes in employment status, and transaction details (such as purpose for the loan, down payment amount, sources of funds for down payment, factors influencing decision to refinance, interest rate and whether rate is fixed or adjustable, parties who contributed to the payment of closing costs, the type of property and other property details).

FHFA Deputy Director Sandra Thompson stated that “The goal of the survey is to obtain information to help improve lending practices and the mortgage process for future borrowers.” CFPB Acting Director Mick Mulvaney stated that “These data will allow greater transparency, accountability, and effectiveness around borrowers’ mortgage experiences.” The surveys are intended to address the FHFA obligation under the Housing and Economic Recovery Act to conduct monthly mortgage surveys of all residential mortgages, and the CFPB obligation under Dodd-Frank to monitor the primary mortgage market, including through the use of survey data.

The CFPB recently issued a revised version of the Home Mortgage Disclosure (Regulation C) Small Entity Compliance Guide to reflect a partial exemption to Home Mortgage Disclosure Act (HMDA) requirements made by the Economic Growth, Regulatory Relief, and Consumer Protection Act and a related interpretive procedural rule issued by the CFPB. Pursuant to the partial exemption, depository institutions and credit unions are exempted from the new HMDA reporting categories added by Dodd-Frank and the HMDA rule adopted by the CFPB with regard to (1) closed-end loans, if the institution or credit union originated fewer than 500 such loans in each of the preceding two calendar years, and (2) home equity lines of credit (HELOCs), if the institution or credit union originated fewer than 500 HELOCs in each of the preceding two calendar years.

There also are revisions that are not related to the partial exemption. Section 4.1.2 is revised to clarify loans that are not counted when determining if an institution’s lending volume triggers HMDA reporting. The table in Section 5.8 of the Guide regarding the loan amount reported is revised for (1) counteroffer situations when the applicant did not accept or failed to respond to the counteroffer and (2) situations in which an application is denied, closed for incompleteness or withdrawn.

As we reported previously, in June 2018 Zillow Group (Zillow) announced that it is no longer under investigation by the CFPB for Real Estate Settlement Procedures Act (RESPA) and UDAAP compliance with regard to its co-marketing program. The CFPB investigation triggered a securities lawsuit filed in the United States District Court for the Western District of Washington (C17-1387-JCC). The plaintiffs alleged in a putative class action that they purchased Zillow shares at an inflated price and were damaged by alleged material misrepresentations by the defendants regarding the Zillow co-marketing program and CFPB investigation of the program. The court noted that there was a decline in the price of Zillow stock in the two days after Zillow provided an update in August 2017 regarding the status of the CFPB investigation. Underlying the plaintiffs’ claims were alleged violations of RESPA with regard to the co-marketing program, which are the focus of this blog post.

The court noted that because the plaintiffs alleged securities fraud under section 10(b) of the Securities Exchange Act of 1934 and section 10b-5 of Securities and Exchange Commission rules, in order to survive a motion to dismiss the complaint must satisfy the general standard of setting forth sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face, and meet additional standards. One additional standard is that that the complaint must state with particularity the circumstances constituting fraud or mistake.

With regard to RESPA, the plaintiffs asserted that the co-marketing program (1) acted as a vehicle to allow real estate agents to make illegal referrals to lenders in exchange for the lenders paying to Zillow a portion of the agents’ advertising costs, and (2) facilitated RESPA violations by allowing lenders to pay to Zillow a portion of their agents’ advertising costs that was in excess of the fair market value of the advertising services that the lenders received from Zillow. The court found that the plaintiffs failed to sufficiently plead either theory of RESPA liability.

In support of the theory that when lenders pay a portion of the real estate agent’s advertising costs to Zillow they are effectively paying to receive unlawful mortgage referrals from the agent, the plaintiffs cited the CFPB enforcement action against PHH Mortgage Corporation regarding mortgage reinsurance arrangements. We have extensively reported on the matter, in which the CFPB deviated from prior government interpretations of RESPA by effectively reading out of RESPA the section 8(c)(2) safe harbor that permits payments for goods and services between parties even when there are referrals of settlement services business between the parties. The U.S. Court of Appeals for the D.C. Circuit rejected the CFPB’s interpretation of RESPA. Summarizing the holding of the D.C. Circuit, the court in the Zillow case stated the “D.C. Circuit held that RESPA’s safe harbor allows mortgage lenders to make referrals to third parties on the condition that they purchase services from the lender’s affiliate, so long as the third party receives the services at a “reasonable market value.””

The court in the Zillow case determined the plaintiffs’ assertion that the co-marketing program violates RESPA because it allowed agents to make referrals in exchange for lenders paying a portion of their advertising costs “is neither factually nor legally viable.” The court first noted that the complaint does not contain particularized facts demonstrating that real estate agents participating in the co-marketing were actually providing unlawful referrals to lenders. The court then stated that, even if it “draws an inference that co-marketing agents were making mortgage referrals, such referrals would fall under the Section 8(c) safe harbor because lenders received advertising services in exchange for paying a portion of their agent’s advertising costs.”

Addressing the plaintiffs’ second theory of liability—that the co-marketing program facilitated RESPA violations by allowing lenders to pay more the than fair market value for advertising services they received from Zillow—the court states that the plaintiffs failed to provide particularized facts that demonstrate that the lenders actually paid more than the fair market value of the advertising services they received from Zillow.

While the mortgage industry will welcome the favorable decisions on the RESPA issues, industry members should be mindful that the context is a securities fraud case with specific pleading standards.

 

The U.S. House of Representatives recently passed H.R. 6737 to amend the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) to address a technical issue that prevented mortgage lenders from including certain VA refinance loans in Ginnie Mae securitizations.

As we previously reported, the Act includes provisions designed to protect veterans when refinancing a VA loan. Specifically, the Act prohibits the VA from guaranteeing or insuring a loan unless:

  • The veteran will recoup the fees to refinance within 36 months of the date of the loan.
  • There is a net tangible benefit to the veteran in the form of an interest rate reduction. If a fixed rate loan is being refinanced with another fixed rate loan, the rate reduction must be at least 50 basis points. If a fixed rate loan is being refinanced with an adjustable rate loan, the rate reduction must be at least 200 basis points. The rate reduction may be achieved through the payment of discount points, subject to limitations.
  • The refinance loan is made the later of (1) the date that is 210 days after the date on which the first monthly payment is made on the existing loan, and (2) the date on which the sixth monthly payment is made on the existing loan. The seasoning requirement does not apply to a cash-out refinance loan when the principal amount of the new loan exceeds the amount of the loan being refinanced.

The Act includes a corresponding provision under which a VA refinance loan may not be included in a Ginnie Mae securitization unless the loan seasoning requirement in the third bullet point is satisfied. The Act did not provide for a specific effective date for the Ginnie Mae provision and as a result the requirement became effective upon the Act being signed into law on May 24, 2018, and applied to existing refinance loans that were not already included in a Ginnie Mae securitization. This meant that lenders were unable to include in a Ginnie Mae securitization any of such existing loans if the loans did not satisfy the seasoning requirement.

H.R. 6737, entitled the Protect Affordable Mortgages for Veterans Act of 2018, would amend the Act to replace the sentence that added the seasoning requirement for Ginnie Mae securitizations with the following sentence: “The Association is authorized to take actions to protect the integrity of its securities from practices that it deems in good faith to represent abusive refinancing activities and nothing in the Protect Affordable Mortgages for Veterans Act of 2018, the amendment made by such Act, or this title may be construed to limit such authority.”

The Mortgage Bankers Association applauded the action by the House and urged the Senate to swiftly pass the legislation.

 

The CFPB recently released a File Format Verification Tool for 2018 Home Mortgage Disclosure Act (HMDA) data. As we reported, in October 2015, the CFPB adopted significant changes to the HMDA rules that significantly expanded the amount of information that must be collected and reported. Calendar year 2018 is the first year in which the expanded data must be collected.

The Tool can be used by HMDA filers to test whether their HMDA data file meets the following formatting requirements: (1) whether the file is in the pipe-delimited format, (2) whether the file has the proper number of data fields, and (3) whether the file has data fields that are formatted as integers, when applicable. The Tool cannot be used to file HMDA data. The CFPB advises that there are no login requirements to use the Tool, the Tool will not log identifying information about users or the files that they test using the Tool, and no federal agency will receive or be able to view the files that users test using the Tool.

On July 31, 2018, the day that the National Flood Insurance Program was set to expire, the United States Senate voted 86 to 12 to reauthorize the program through November 30, 2018.  The action follows an earlier reauthorization of the program through the same date by a 336 to 52 vote in the United States House of Representatives.  President Trump signed the reauthorization, which simply kicks the can down the road to just after the mid-term elections, and falls far short of the more permanent resolution to the flood insurance program sought by the mortgage industry.

The Consumer Financial Protection Bureau (CFPB) recently issued a statement regarding the partial exemption from Home Mortgage Disclosure Act (HMDA) reporting requirements for certain lower mortgage volume depository institution lenders that was adopted in the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act).

As we reported previously, the Act exempts depository institutions and credit unions from the new reporting categories added by Dodd-Frank and the HMDA rule adopted by the CFPB with regard to (1) closed-end loans, if the institution or credit union originated fewer than 500 such loans in each of the preceding two calendar years, and (2) home equity lines of credit (HELOCs), if the institution or credit union originated fewer than 500 HELOCs in each of the preceding two calendar years. The HELOC change will not initially affect reporting because, for 2018 and 2019, the threshold to report HELOCs is 500 transactions in each of the preceding two calendar years under a temporary CFPB rule.

The Act’s partial exemption from reporting the new HMDA data does not apply if the institution received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent Community Reinvestment Act (CRA) examinations, or “substantial noncompliance in meeting community credit needs” on its most recent CRA examination.

The CFPB advises in its recent statement that it expects later this summer to provide further guidance on the applicability of the partial exemption to HMDA data collected in 2018. The CFPB also advises that the partial exemption will not affect the format of 2018 Loan Application Registers (LARs) and that:

  • LARs will be formatted according to the previously-released 2018 Filing Instructions Guide for HMDA Data Collected in 2018 (2018 FIG).
  • If an institution does not report information for a certain data field due to the partial exemption, the institution will enter an exemption code for the field specified in a revised 2018 FIG that the CFPB expects to release later this summer.
  • All LARs will be submitted to the same HMDA Platform.

The CFPB also notes that a beta version of the HMDA Platform for submission of data collected in 2018 will be available later this year for filers to test.

In Financial Institution Letter FIL-36-2018 and in OCC Bulletin 2018-19 the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, respectively, issued similar guidance to institutions.